Q2 2026 8x8 Inc Earnings Call

Speaker #2: Good day and thank you for standing by . Welcome to the Eight by Eight Inc. . Second quarter 2020 Earnings Conference Call . At this time , all participants are in a listen only mode .

Speaker #2: After the speaker's presentation , there will be a question and answer session . To ask a question during the session , you'll need to press star one one on your telephone .

Speaker #2: You will then hear an automated message advising your hand is raised to withdraw your question . Please press star one one again . Please be advised that this conference is being recorded .

Speaker #2: I would now like to hand the conference over to your speaker today , Kate Patterson Vice President of Finance . Please go ahead .

Speaker #3: Thank you . Operator . And good afternoon , everyone . Today's agenda will include a review of our results for the second quarter of fiscal 2026 with Samuel Wilson , our chief Executive Officer , and Kevin Kraus , our chief Financial officer .

Speaker #3: Following our prepared remarks , there will be a question and answer session . Before we get started , let me remind you that our discussion today includes forward looking statements about our future financial performance , including investments in innovation and our focus on profitability and cash flow , as well as statements regarding our business , products and growth strategies .

Speaker #3: We caution you not to put undue reliance on these forward looking statements as they involve risks and uncertainties that may cause actual results to vary materially from forward looking statements as described in our risk factors .

Speaker #3: In our reports filed with the SEC . Any forward looking statements made on this call and in the presentation slides reflect our analysis .

Speaker #3: As of today , and we have no plans or obligations to update them . All financial metrics that will be discussed on this call are non-GAAP unless otherwise noted .

Speaker #3: These non-GAAP metrics , together with year over year comparisons in some cases , were not prepared in accordance with us generally accepted accounting principles or GAAP .

Speaker #3: A reconciliation of these non-GAAP metrics to the closest comparable GAAP metric is provided in our earnings press release and earnings presentation slides , which are available on 8X8 INC /DE/ Investor Relations website at investors 8X8 INC /DE/ .

Speaker #3: With that , I'll turn the call over to our Chief Executive Officer , Samuel Wilson .

Speaker #4: Thank you all for joining us today . As we mentioned last quarter , we are transitioning our conference call format . We're moving away from reading lengthy , prepared remarks , and instead are posting a detailed quarterly letter , complete with business and financial highlights , to the Investor Relations website .

Speaker #4: In the quarterly results section this quarter , Kevin and I will share brief remarks highlighting a few important points . Q2 was another strong quarter for eight , and the results reflect the progress we're making in the business .

Speaker #4: We are continuing to execute against our priorities for the year , returning to growth , expanding our use of AI to improve both customer and employee outcomes , completing the fuse platform , shutdown and driving stronger retention through cross-sell and multi-product adoption .

Speaker #4: But the real story this quarter is innovation . It is transforming how customers experience eight by eight . And what is powering our growth .

Speaker #4: We've embedded AI throughout our platform to make communications smarter , faster and more personal from real time call summarization and contact center to AI powered transcription work .

Speaker #4: An eight by eight work to new Agentless payment capabilities to digital channels like Viber and RCS in eight by eight . Engage . Engage is our AI powered solution that extends contact center capabilities to all customer facing employees .

Speaker #4: Internally . We're using AI to work smarter , automating processes , improving forecasting , and helping our teams deliver faster , higher quality customer experiences .

Speaker #4: We view AI as elevating enhancing the work of our employees , making us more efficient . We were also transforming how we take our innovation to market , aligning our sales , marketing and partner motions around customer outcomes .

Speaker #4: And I'm excited to share that Steven Hammell has stepped into the role of Chief Revenue Officer to lead this next phase . Steven successfully drove our Cpaas API usage in the Asia Pacific region and around the world .

Speaker #4: So some key points . Today we announced eight by eight workforce management available starting next week to all contact center customers at no additional cost through our new eight by eight App Store .

Speaker #4: Yes , you heard that right . We're making workforce management available free of charge to all of our contact center customers , existing and new ones .

Speaker #4: We already have customers running it in production . This is a big moment for two reasons . First , this is our first product led growth or Plg launch .

Speaker #4: We've introduced a high-value solution designed to drive adoption, with a premium version planned for future release. Workforce management is available to everyone.

Speaker #4: Second , it marks the beginning of a broader expansion . We'll be adding more applications to the eight by eight App Store shortly , giving customers a modern , flexible , self-service way to activate new capabilities .

Speaker #4: We're expecting strong demand for workforce management , so we've begun a progressive rollout starting next week . The eight by eight App Store and Plg strategy was implemented to better support the accelerating pace of AI native product innovation .

Speaker #4: And it reflects our commitment to delivering outcomes that matters . We have new apps teed up for both UC and CC in the near future .

Speaker #4: Switching gears , I want to highlight how we're changing the lives of our customers . One example is one of the largest automotive dealerships in the UK .

Speaker #4: Before working with eight by eight , they were juggling nine different communication across its dealerships , creating complexity and slow response times by moving to eight by eight , they consolidate everything .

Speaker #4: Voice , video , contact center analytics to one integrated platform . The impact has been transformational . The dealer group now uses eight by eight contact center video elevation .

Speaker #4: Conversational IQ with a strong adoption of web chat and digital engagement . They're also piloting smart Assistant and Intelligent Customer Assistant to automate quality assurance and bring real time AI analytics to their service teams .

Speaker #4: Their systems IT leader summed it up well when he said , eight by eight helps us focus on what matters most , providing the best experience to our customers .

Speaker #4: In short , we went from nine vendors down to one . Unlocking better visibility , faster response times and stronger connection with every customer across the Atlantic , a Multi-hundred million dollar software company uses eight by eight is another powerful example of how our innovation drives measurable business outcomes .

Speaker #4: They're using multiple eight by eight products , including Ucas and CAS , as well as engage secure pay and conversational IQ to deliver a seamless , data driven customer experience across their network .

Speaker #4: Their team has fully embraced eight by Eight as a strategic platform , not just for communication , but for business transformation . They're leveraging analytics and engagement insights from eight by eight engage to refine the sales and service workflows to connect all customer facing employees in and out of the contact center .

Speaker #4: They're also piloting smart Assist to improve Mystery shopper scores and coach their frontline teams in real time . It's a deep collaborative relationship from executive leadership to frontline users .

Speaker #4: Built on trust , measurable outcomes , and shared success . This software vendor exemplifies what we mean when we talk about long term customer partnerships .

Speaker #4: Built on a comprehensive portfolio of products . These are the kinds of outcomes that define our innovation story . Outcomes that are measurable , transformational , and rooted in customer success .

Speaker #4: They show what makes eight by eight different . We're not just delivering new features or chasing trends , we're helping organizations simplify their technology , empower their employees , and create experiences .

Speaker #4: Their customers remember , whether it's a service provider and an auto dealership resolving an issue in one interaction or a software team using analytics and automation to raise customer satisfaction scores .

Speaker #4: These are really examples of eight by eight innovation in action . That's what makes this journey so exciting . Innovation that creates lasting impact for our customers , our people , and ultimately our shareholders .

Speaker #4: With that , I turn it over to Kevin to share a few highlights from the quarter .

Speaker #5: Thanks , Sam . Good afternoon everyone . And I also want to thank you for joining us for our fiscal Q2 2020 earnings call .

Speaker #5: Detailed financial results are available in our press release and in the financials on our Investor Relations site . As Sam mentioned , we're introducing a slightly different format this quarter , and I have also posted a shareholder letter and financial highlights alongside our quarterly materials .

Speaker #5: With that information already available , I'll focus my remarks on a few key highlights , unless otherwise noted , all figures other than revenue and cash flow are presented on a non-GAAP basis .

Speaker #5: Q2 marked our second consecutive quarter of year over year revenue growth , reflecting healthy usage trends and disciplined execution . Total revenue was $184.1 million , and service revenue was $179.1 million , with both exceeding the high end of guidance by roughly $4 million and growing 1.7% and 2.3% year over year , respectively , driven by continued strength in our usage based offerings , excluding revenue from fuse customers , whether on the eight by eight platform or not .

Speaker #5: Service revenue grew nearly 6% year over year . Higher growth than we achieved last quarter and our fourth quarter of acceleration . Service revenue remaining on the fuse platform declined to approximately 3% of total service revenue , down from approximately 7% in Q2 25 .

Speaker #5: We are on track to move the remaining Fuse customers onto the Eight by Eight platform by calendar year-end. Usage revenue, which includes our CPaaS communication APIs, saw another record performance totaling approximately 19% of service revenue, compared to approximately 13% in Q2 2025.

Speaker #5: Gross profit for the quarter was $120.9 million . About $2 million above our implied guidance . Midpoint , reflecting strong execution and revenue outperformance .

Speaker #5: Gross margin was 65.7% down sequentially due to the continued mix shift toward our usage revenue , which carries a lower margin profile but will add meaningful profit dollars as usage revenue continues to scale .

Speaker #5: Operating income came in at $17.3 million , exceeding expectations and resulting in a 9.4% operating margin above the high end of guidance . Fully diluted EPs landed at $0.09 per share , $0.01 above the high end of our guidance range .

Speaker #5: Cash flow from operations was $8.8 million for the quarter , above the high end of guidance . We ended the quarter with $76.7 million in cash .

Speaker #5: Cash equivalents and restricted cash . We continue to allocate capital to debt reduction . During the quarter , we made a $10 million term loan prepayment and subsequent to quarter end , we made an additional $5 million term loan payment .

Speaker #5: With these actions , we have reduced our debt principal by $224 million , or 41% , since the August 2022 peak debt of $548 million .

Speaker #5: Our next required term loan payment of $2 million isn't due until June 30th , 2026 . These proactive delevering actions demonstrate our continued commitment to disciplined capital management , stock based compensation as a percentage of revenue was 2.9% .

Speaker #5: Another multi-year low for the company . This continues a clear downward trend , reflecting our ongoing focus on prudent equity management . While our diluted share count has grown , the year over year increase declined notably versus the prior quarters growth for the second quarter in a row .

Speaker #5: We are committed to minimizing dilution over time and managing compensation costs in a thoughtful and sustainable manner . Looking to Q3 , our revenue guidance reflects a sequential decline following record usage revenue in Q2 and the ongoing winddown of Fuse related revenue , customer engagement remains healthy , but we are forecasting usage based revenue growth more cautiously given potential variability in consumption patterns as usage continues to represent a larger share of total revenue .

Speaker #5: We have incorporated this dynamic into our outlook when an appropriately measured approach . Given the rapid growth of our usage revenue , we are guiding to lower gross margins for the remainder of the year .

Speaker #5: Importantly , this mix shift reflects increasing engagement with our platform and expanding use cases across our customer base . We are actively managing this evolution through disciplined execution and targeted go to market initiatives , and we remain confident in our ability to deliver durable , long term growth and profitability for fiscal Q3 26 .

Speaker #5: We are providing the following guidance . Service revenue is expected to be between 172 million and $177 million . Total revenue is anticipated to be between 177 million and $182 million .

Speaker #5: We anticipate gross margin between 64 and 66% , and we anticipate operating margin between 9 and 10% in fiscal Q3 . We expect contractual interest expense , which excludes amortization of debt issuance costs , to be approximately $4.2 million based on current interest rates and the principal outstanding on our term loan and 2028 convertible notes , we expect to make cash interest payments of approximately $2.2 million , which reflects only the term loan interest payment .

Speaker #5: As the semiannual interest on our 2020 convertible notes is payable during Q2 and Q4 , only . Our term loan interest rate assumption is approximately 7% , reflecting Sofr plus 3% .

Speaker #5: We anticipate fully diluted non-GAAP earnings per share in the range of $0.08 to $0.09 per share , based on approximately 143.5 million fully diluted shares outstanding .

Speaker #5: We anticipate cash flow from operations to be between $10,000,014 million , driven by the timing of cash interest payments and other payments . We make in the normal course of business .

Speaker #5: For full fiscal year 2026 , we are updating our guidance as follows . Service revenue is anticipated to be between 692 million and $706 million .

Speaker #5: Total revenue is anticipated to be between 712 million and $726 million . We anticipate gross margin to be between 65 and 66% full year operating margin is projected between 8.5 and 9.5% , translating to non-GAAP operating income of approximately $65 million at the midpoint of our full year revenue and operating margin guidance .

Speaker #5: Although operating margin is expected to decline year over year due to mix related gross margin pressure , we expect non-GAAP net income to remain relatively stable , supported by significantly lower interest expense compared to fiscal 2025 .

Speaker #5: We expect fully diluted non-GAAP earnings per share to be in the range $0.31 to $0.33 for the year , assuming approximately 143 million average diluted shares outstanding .

Speaker #5: And we anticipate cash flow from operations to be between 38 million and $42 million for the full year . In summary , Q2 reflected steady execution , consistent profitability and ongoing progress in strengthening our balance sheet with disciplined expense management and a clear focus on profitable growth .

Speaker #5: We enter the second half of the fiscal year with strong momentum and confidence in our ability to deliver sustained shareholder value . With that , I will turn the call over for Q&A .

Speaker #2: Thank you . Ladies and gentlemen , if you have a question or a comment at this time , please press star one one on your telephone .

Speaker #2: If your question has been answered or you wish to remove yourself from the queue , please one one again . We will pause for a moment while we compile our Q&A roster .

Speaker #2: Our first question comes from Michael Funke with Bank of America . Your line is open .

Speaker #6: Yeah . Hi . Good evening . Thank you all for the questions . I had three , if I could . So first on the service margin comments that you had .

Speaker #6: I understand you're seeing more and more usage based

Speaker #6: , but maybe help us think about the P times to queue there . How much of that driven by volume versus change in price ?

Speaker #5: it's a margins on the say the application side are very stable and consistent right now and have been for years . It's a pure mix issue for the usage based portion of the service revenue .

Speaker #5: So right now not as much price , although we are seeing some pricing pressures in some deals . It's not as in totality , it's not a price up driver right now .

Speaker #6: Okay . Then just thinking about the revenue trajectory . And thank you for the revenue excuse . But is excuse the right way to think about the revenue trajectory exiting the year as you end of life or meaning fewer customers .

Speaker #7: Okay . Yes . But remember , as we end of life and .

Speaker #4: It's not end of life , we're upgrading the customers . Just just for any lawyers listening . We're upgrading customers onto the AI platform .

Speaker #4: Michael , we still have a bit of a comp , so it's gone from the numerator and denominator to just the denominator . So I think we'll have maybe a two point , maybe a slightly lower , slightly less whatever headwind in next year's growth rate .

Speaker #4: As we rolled off these fused customers . And then we'll be back to normalized sort of growth rates ex any other things we do .

Speaker #6: Okay . Do you anticipate you'll give us a pro forma ex fuse next year for more comparability .

Speaker #4: Oh that's like two quarters away . Michael I haven't thought that far in advance yet . Probably like we'll give you numbers if it makes your life easier .

Speaker #6: Okay . And then the last one for me . Then I'll hand it off . So a number of comments and the in the letter about the go to market changes that you're , that you're making and one of the comments was the , the improvement in pipeline quality .

Speaker #6: So love to know how you're measuring the pipeline quality . And maybe some of the improvement you've seen there .

Speaker #4: quality . That means it's you know there's been a first meeting . There's been discovery . There's a vetting process that's been done , etc.

Speaker #4: . And so that's where we're seeing , you know , the improvements in quality .

Speaker #6: And how have you improved the quality . Sam , are there more guardrails around what allows a salesperson or something into the funnel ?

Speaker #6: What's contributing improvement in the quality ?

Speaker #4: I'd love to give you a simple answer , but yes , we're using more SDRs . So they're having an ability to weed out some of the stuff .

Speaker #4: The use of AI in our sales process . I cannot underestimate how important the use of artificial intelligence has been in improving our GTM efficiency , and processes , and those things .

Speaker #4: So it's a number of contributing factors . It's it's not death by a thousand cuts . It's improved quality by a thousand paperclips .

Speaker #6: Great . Thank you both again for the questions .

Speaker #4: Thank you Michael .

Speaker #2: One moment for our next question . Our next question comes from Josh Nichols with B Riley . Your line is open .

Speaker #8: Yeah . Thanks for taking my question . Good to see revenue coming in at the top end or above the top end of the range .

Speaker #8: Yeah , I was just looking at the guidance breakdown and it was transitioning at calendar year end . I think the guidance kind of implies that maybe service revenue drops out in like four .

Speaker #8: Q but is the expectation that going from there , you know , since you don't have those comps into fiscal 27 , you'd start to see improvements on the sequential basis without the overhang .

Speaker #4: Okay . So Josh , your question is completely appropriate . It's just really hard to answer now that usage is 19% of our revenue , right ?

Speaker #4: So we try to be very conservative with our usage based modeling . I mean , we're still early in this transition to usage based revenue .

Speaker #4: And , you know , I'd like to get a little bit bigger pool that . So mathematically , one customer can't swing it or three customers can't swing it .

Speaker #4: Or a change in economic can swing it . So I'm not ready to yet predict exactly when you're going to see that . It will depend a little bit on some renewals coming up .

Speaker #4: It will depend on our usage and and it will depend on new bookings that we put into the mix . Right . So it's a lot of moving pieces .

Speaker #4: I do feel confident , you know that was that two quarters of accelerating growth . We are sort of on the track to continue to grow .

Speaker #4: And you know , we can put in the rear view mirror these year over year declines perpetually . But I'm not ready to say where and when yet , if that's okay with you .

Speaker #8: That's okay . I guess . Just to flip the question a little bit , like you said , you've been taking a pretty conservative approach to the usage based revenue , and I think that that makes sense .

Speaker #8: If you could talk about how you kind of handicapping what you're seeing versus how you're guiding or how you're . Yeah .

Speaker #4: So what we do is we basically take the exit run rate for a quarter and we run that forward in perpetuity , right .

Speaker #4: So we're not assuming , even though the business is growing , we're not necessarily assuming it's going to grow . And then we add in known growth businesses .

Speaker #4: Right . So we know we've got a big deal coming or we know we've got Christmas coming or the holidays . We'll adjust accordingly .

Speaker #4: But our baseline is always on . Usage is whatever we're running on the exit quarter . That's what we're going to run in perpetuity .

Speaker #4: And so when it's growing and it's growing nicely right now , especially with all the AI stuff and the Cpaas stuff , it's just , you know , it has a tendency to beat .

Speaker #4: And then we try to flow that through .

Speaker #8: Got it . That makes sense . Yep . Sorry . Go for it .

Speaker #9: Yeah . Sam . Sam . Sam's comment about seasonality . Yeah . In the usage portion of our of our business is , you know , something that can have an impact and that , again , could could really drive .

Speaker #4: It's a great point , Kevin . I would agree with that . But like we are entering the holiday season so we see more marketing campaigns .

Speaker #4: We see in general more phone calls , particularly in our retail vertical , our hospitality vertical , those kinds of things . And we generally see in the March quarter , our fourth quarter , a little bit more seasonal , you know , less usage on the holidays .

Speaker #9: Lunar , new , lunar New Year , China , you know .

Speaker #4: Asia shuts down a little bit , right ? So we are starting to see a little bit more seasonality in the business .

Speaker #8: Got it . Thanks . Thanks for the context , Sarah . Then last question for me , usage base up to like close to 20% of revenue seen .

Speaker #8: Very nice acceleration . There . I know you talked about the the margin outlook , right . And how that's impacting the margin .

Speaker #8: Still really healthy margins but . You know , 65 to 66% non-GAAP . Any idea . And maybe it's hard to ask or pontificate on .

Speaker #8: But exactly like where that kind of winds up leveling out at , as we think a few quarters ahead .

Speaker #9: Yeah . I mean , Josh , it really depends on the mix .

Speaker #5: Like I mentioned , the previous from Michael's question about our margins being relatively stable for different portions of the business . It really will boil down to mix the point .

Speaker #5: I want to make , though , on this is that we look at absolute dollar profitability . And so if gross margin is is positive for that piece of the business , great .

Speaker #5: And it is a light opex model . So more of that flows to the bottom line . So as we scale we may see the gross margin deteriorate a little bit .

Speaker #5: But the but the bottom line and the cash flow are what we're looking at as well . And that's looking like it could be even improving over time based upon the , the , the cost base of that particular portion of the business .

Speaker #4: I just I have to step in . I can't stress enough what Kevin's saying for our investors . Right . And we've said this numerous times in the past .

Speaker #4: We would not be surprised if we saw gross margin come down a little bit as we scale the business . While gross profit dollars increase , it's just a mix .

Speaker #4: It's how customers are adding on AI products or messaging products or these kinds of things . But we know the more products we sell customers , the stickier they are .

Speaker #4: The higher the LTV , the higher the average revenue per customer . It's the right thing to do for the long term value of the customer , and therefore it's the long term value of the shareholder .

Speaker #6: Okay .

Speaker #8: Got it . Thanks guys .

Speaker #4: Thank you .

Speaker #2: One moment for our next question . Our next question comes from Peter Levine with Evercore . Your line is open .

Speaker #10: Great . Thank you guys for taking my question . Congrats on the deleveraging . I think that was obviously part of the plan for a while .

Speaker #10: So good to see that . Maybe to go back to the prior question around the pricing pressure that you're seeing . I've heard from some of your competitors that during Covid , prices were high .

Speaker #10: And now that 2 or 3 years as renewals come up , pricing becomes part of the conversation . And you've seen a bit of not commoditization , but pricing used as a lever .

Speaker #10: How much of that is are you seeing as part of renewals ? Where you're going to have to go through a period of time where as these renewals that you've had over the past three years come to ?

Speaker #10: Is that part of the equation is that some of the headwinds that you guys are dealing with , or seeing today ?

Speaker #4: Yeah , of course . I mean , I think look , during the pandemic , you saw , you know , rushed buying , especially from the on prem to cloud type of systems .

Speaker #4: And , you know , as those reach two and three and , you know , renewal year renewals they're they're being right sized .

Speaker #4: So it's not just I want to be clear pricing pressure . certainly happening mainly led by a certain video conferencing company who seems to , you know , sort of be price agnostic sometimes .

Speaker #4: But also we are seeing some rationalization of seats , you know , driven by the economic situation , etc. . What's offsetting that is our AI products , our messaging products , our digital project products , etc.

Speaker #4: . Right . So I mean , I can't stress this enough , like the , the idea that we're surprised this is happening is completely false .

Speaker #4: We completely know what's happening . We're managing it accordingly . And this is one of the reasons we've added more products to the mix .

Speaker #4: Right . So what we're seeing is is customers may reduce the number of seats , but add RCS , which we now offer globally into the mix .

Speaker #4: And that's offsetting the average revenue per customer . And this is why we're seeing average revenue per customer increase on a year over year basis , particularly as we get more three , 4 or 5 product customers .

Speaker #4: And our retention rates are going up as we get more multi-product customers . So in the end , this post-Covid transition is certainly one we have to deal with .

Speaker #4: It's one we're very aware of and we're managing , but it's not one that scares us .

Speaker #10: Okay , maybe WFM , obviously it's a free offering . Maybe walk us through the strategy there and then . I guess if there's a way to handicap what percentage of your customers are actually using you guys today for WFM versus like a point solution ?

Speaker #10: Curious to know what what the strategy was behind offering that ? Obviously , I think we know some of the drivers , but curious to know what the strategy is and what you expect to see over the next four quarters .

Speaker #4: Okay , so we saw an opportunity with WFM market . So contrary to probably what you've heard in Peter , I know you know this like the back of your hand .

Speaker #4: Right . Contrary to what people sometimes say is the most popular WFM product in the world is Excel , right ? By far .

Speaker #4: And with average contact center in the United States being 73 seats , and probably , you know , 50 , 40 to 50 seats in international markets , Excel sort of works .

Speaker #4: And so we wanted to do was build a product that's better than Excel for managing WFM and giving it away to our customers to provide value and really start to enter the world of product led growth with a pro version , which will offer an enhanced analytics or better forecasting or , you multi-site .

Speaker #4: There's a couple of different ways we can take it in the future , but just simply having a product to replace Excel adds tremendous more value to our customers , which is what we're , you know , we care about , right ?

Speaker #4: We're in a game of renewal and those kinds of things . And . You know , it just drives them multi-product LTV , the ability to add product led growth through our new app store , which we're super excited about .

Speaker #4: All these kinds of things . And it's just , you know , we really want to drive value into our customers . And it was a way , given how software and expenses work , it was a way to drive a lot of value into our contact center seats very quickly .

Speaker #4: You know , we see our competitors charging 20 bucks and 30 bucks a month for arguably something that isn't that hard . And so we really wanted to to drive that cost curve down and drive more to a freemium model for it to really meet our customers where they're at .

Speaker #4: Okay . In terms of now what what our product isn't , is it isn't designed for a big contact center . We're not trying to compete with Calabro and Verint and those guys , right ?

Speaker #4: They offer gamification and other things that we're not sort of up to yet . And most of our customers don't really want . And so we saw the market need for a replacement for spreadsheets , not a replacement for collaborate or variant .

Speaker #4: If you want to , you know , if you're running a thousand , we have many customers running a thousand or more contact center seats .

Speaker #4: You're going to use one of those higher-end products because they're just designed differently and they work differently.

Speaker #10: Perfect . And maybe just squeeze . The last one I talked about some of the deleveraging you guys have had . How do you think about M&A smaller tuck ins versus organic .

Speaker #10: Right . Obviously there's a a cost to both sides of that . But how do you think about it and maybe help us understand .

Speaker #10: Are there still any covenants that you have to manage through with with the debt levels that you have today ? Just help us understand how you're thinking about organic versus kind of tuck in M&A to kind of accelerate some of the product development ?

Speaker #10: Sure .

Speaker #4: So we did an acquisition last in the March quarter . It was a small tuck in acquisition . It wasn't , you know , non-material .

Speaker #4: So we didn't make a big deal out of it . But we've done one . We're looking at others . We're active in the market .

Speaker #4: So we're we're looking , you know , debt retirement is still a primary route that we think to drive , you know , stakeholder value over time .

Speaker #4: So we're definitely focused on that . We are on a term loan A . So there are some covenants there very manageable . They're fully disclosed in our filings .

Speaker #4: There's nothing to worry about from them . I wouldn't want to do anything , anything outrageous like I you know , I see people who want who advocate for these large AI acquisitions that , you know , that bring on losses and those kinds of things .

Speaker #4: We are a cash flow driven company , and we do work on cash flow and focus on flow , and that's what we're focused on .

Speaker #4: So, I would say we are cash looking at M&A. We think it definitely is part of our capital allocation strategy to acquire tuck-ins to drive geographic expansion.

Speaker #4: Product portfolio expansion or customer expansion . Those are the big three that we look at . And you know , when the right one comes , we have no problems pulling the trigger .

Speaker #10: Thank you very much .

Speaker #5: The amendment to the amendment , we did also created a basket for tuck ins as well , which we which we articulated last quarter .

Speaker #5: If you remember, we have that freedom in our term loan.

Speaker #2: Thank you. One moment for our next question. Our next question comes from Katherine Srebrnic with Rosenblatt Securities. Your line is open.

Speaker #11: Oh , thanks for taking my call . Hey , Sam , how are you seeing the buying pattern change now that AI seems to be more part of the discussion .

Speaker #11: And what are you seeing? The difference with the traditional brokers versus, like, the professional service guys? It seems to me from.

Speaker #11: Well , I'll tell you what I think afterward . Well , let me get your opinion first . Thanks .

Speaker #4: So first off , look , I want to break this into two parts . There's AI itself , the technology , AI itself .

Speaker #4: I think what we're seeing is customers are driving really to the first core use case adoptions . And adopting those . So agent assist or we call it smart assist or our AI receptionists , you know , those kinds of things .

Speaker #4: Very specific targeted use cases . We're obviously most of us in the industry are spreading it across things like summarization or those kinds of analysis .

Speaker #4: And so there's a lot of those first use cases are getting adopted . So what's changing ? I would say is the buyer doesn't come in and say , hey , what do you guys sell for AI ?

Speaker #4: He the buyer comes in , he or she comes in and says , you know , look , we're looking for an agent assist solution .

Speaker #4: Can you tell me about the ones that you offer and through our partnership , we always get to offer great things . The second one is much more subtle , and I think we were in front of it and will remain in front of it for an extended period of time .

Speaker #4: Is that AI is sold on a consumption based model . Whole notion of , you know , a seat of AI . And I know that Gartner and others have tried to bend , you know , old SaaS metrics into the world of AI .

Speaker #4: They don't work . What works is usage . The , the , the customer wants to pay . And we're even seeing it .

Speaker #4: And I know this is going to , you know , people overreact to this comment . So please don't . But we're even seeing it spill back into our subscription based services where people want to try to morph them more into a consumption based service .

Speaker #4: So what do they want ? They want a right to adjust the number of seats after one year , two year , and three years .

Speaker #4: Because they just don't know how many employees they're going to have . And I just , I absolutely believe that our industry , our SaaS industry is going towards that consumption usage based model .

Speaker #4: It is an unstoppable force . And you can argue , you know , by yourself as much as you want , but the reality is that's where we're going .

Speaker #4: And so what we see is usage based specific use cases are what's driving our business right now .

Speaker #11: That's interesting . Okay . Yeah . No , because what I'm well , we can deal with it more on on the post call .

Speaker #11: But I've been hearing that because it's more complex that , you know , the traditional telco guys aren't really set up to do a more complex sale .

Speaker #11: And so that seems to .

Speaker #4: Be I mean ,

Speaker #12: That's .

Speaker #4: That's true . Look , our professional services team is booked constantly , right ? Our Proserve team is like we're booked all the time and it's I mean , we can get into the nuance here for investors .

Speaker #4: But there is like we're starting to see the whole concept of , you know , deployment change . It's a lot more we're selling more continuous services because these models come require constant fine tuning .

Speaker #4: And there are new use cases and whatever. Customers would rather just buy a flat number of hours per month, every month, contracted.

Speaker #4: Let's go then . One big lump sum purchase upfront .

Speaker #11: Okay. Thanks, Sam. I appreciate the insight.

Speaker #12: Thanks , Catherine .

Speaker #2: One moment for our next question . Our next question comes from Sethi with Mizuho . Your line is open .

Speaker #13: Hey , guys . Thank you for taking the question . It's Chad on for Citi . Just first , I'd be curious if you could expand on any actions you're taking on sort of the cost side as sort of this lower margin revenue comes through the PNL and , and sort of what you're looking at to , to expand operating margins from here .

Speaker #4: Yeah . I mean , we're we're aggressively deploying AI technologies in-house . We don't just sell it for our customers . We use it ourselves .

Speaker #4: And we're seeing ROI benefits . I mean , obviously there's this is a little bit of that margin issue that you guys like to obsess about .

Speaker #4: But when you first buy AI , it actually drives down your margin because you're running the old process . And the new process side by side until you get the new one fully ramped .

Speaker #4: So some of those issues that we see going on , obviously , as we grow in size and we've returned to growth , we're putting pressure on our suppliers to give us good unit pricing and eventually that stuff flows through .

Speaker #4: But a lot of this is just mix . I mean , I've tried to warn Wall Street for years that I believed over time , as we moved more to a usage based model , what you would see is increasing revenue growth , decreasing gross margin , increasing gross profit , dollars , and over time , an increase in operating margins .

Speaker #4: Because you're more aligned with your customers . And the more you get with your customers , the higher LTV you drive over time .

Speaker #4: It's just that simple . A little .

Speaker #5: Color on what Sam just said , which is excellently stated , I might add . The I'll give you an example of we're using AI internally .

Speaker #5: We are able to use AI to right size . A lot of our say , you know , software purchases . I'll give you example where we're able to actually get great insights through the use of AI .

Speaker #5: As to the use of each of the seats or whatever, so we don't overbuy upon renewal. So that's one example of using AI, of many that we're doing right now, to have cost control without removing the ability to.

Speaker #5: Work efficiently internally in the company . So we're seeing we're starting to see good signs there .

Speaker #6: Okay .

Speaker #13: Awesome . Really appreciate the color . And then just one follow up from us . If you could talk about sort of how the revenue trends were in the quarter from from a domestic US standpoint versus international and how that relates to sort of the better revenue outlook from here .

Speaker #4: I mean , it's no surprise . And Kevin gave you more details , but like our our US business isn't doing as well as our international business .

Speaker #4: Right ? I think our , you know , business outside the UK is almost 40% of our I'm sorry , the UK and international , almost 40% of our business .

Speaker #4: And it's growing substantially faster than our U.S. business. I mean, the U.S. is kind of the center of price compression and gamesmanship, and some of those kinds of things relative to what we're seeing in international markets, where we're doing much better.

Speaker #14: Also , the customer base is largely us , and so .

Speaker #4: Yeah, it's largely us, as you said.

Speaker #13: Got it. Thank you, guys.

Speaker #12: Thank you .

Speaker #2: And I'm not showing any further questions at this time . I'd like to turn the call back over to Sam for any further remarks .

Speaker #12: All right . Thank you everyone .

Speaker #4: Thank you for the earnings call . Any feedback you want to give that's super positive on our new format . Please send those to me at Samuel Wilson .

Speaker #4: At com . Any negative feedback you want to give those go to Kate Patterson . I say that jokingly but you know any feedback you want to give us on the new format around a shortened script in a letter and those kinds of things is much appreciated .

Speaker #4: And with that, we look forward to meeting with all our investors again in 90 days, with how we'll do over the next quarter.

Speaker #4: Thank you everyone . And if I don't talk to you before then , happy holidays .